We’ve Been Through Market Corrections Before. Here’s What We’re Doing Now.

Trade uncertainty has led to breathtaking stock market volatility since April 3, and that volatility has been mostly to the downside, despite the historic “Relief Rally” on April 9.

Some investors seem undeterred by the market volatility—they’re embracing it. Recent ETF flows data indicates investors plowed $18 billion into ETFs between April 3 and April 7, favoring S&P 500 index trackers.

But maybe you’re not the “back-up-the-truck-and-buy-the-dip” type. Maybe you’re among the nervous. You’re not alone.

Morningstar director of financial planning Christine Benz and portfolio strategist Amy Arnott have shared many ideas for things investors can do to cope during a correction, things like making sure your cash reserves are where they should be, confirming your asset allocation is appropriate for your life stage, and looking for potential tax-loss selling candidates, to name a few.

While their advice is no doubt useful, sometimes it helps to hear what experienced real-world investors are doing with their money during periods of market stress. With that in mind, here’s how three of Morningstar’s columnists and editors—all of whom have experienced their fair share of stock market corrections—are thinking about their portfolios today.

“The current situation has me reconsidering my overall equity exposure, which was high, relative to my age, and the portion of that exposure devoted to US stocks, given their relative valuations, even after the recent price declines. All corrections and bear markets are different, but this one seems especially so, as the current market volatility is due to a single source. However, that gives me some hope that its removal or reduction will lead to a quick recovery or at least a partial one. While I’m reluctant to lock in any losses, I’m planning to opportunistically reduce my equity exposure and tilt the remaining portion of that exposure to some more defensive areas of the market.”

David Harrell, editor, Morningstar DividendInvestor and Morningstar StockInvestor

“When markets crash, I’m reassured by history. Over the long term, events that seemed monumental in their time—even world wars—end up as blips on an investment growth chart that slopes up and to the right. I’ve lived through big scary selloffs like 2000, 2008, and March 2020, when the Morningstar US Market Index fell by 12% in a single day. All seemed like Armageddon when they happened. But in each case, the US stock market bounced back, validating the Warren Buffett maxim: “Never bet against America.” So, I’m following the signal from my colleagues on Morningstar’s equity research team and using this pullback as a buying opportunity. Stocks may fall further, and the durations of bear markets is unknowable—so I’m not investing money I need anytime soon. For US equities, my north star is the Morningstar Wide Moat Focus Index, which includes the shares of competitively advantaged, attractively valued US companies in the eyes of our equity analysts. I’m also a big believer in global diversification. Though it hasn’t paid off for years, I like the idea of casting the net as widely as possible and having exposure to stocks in different geographies and currencies. I am also maintaining my exposure to bonds, which have cushioned equity market losses in my portfolio, as well as small-cap stocks and commodities. In the face of uncertainty, diversification feels eminently sensible. As always, maintaining a long-term perspective is key.”

Dan Lefkovitz, Morningstar Indexes strategist and cohost of The Long View podcast

“I’m nervous, too. In other market disruptions, the common thread has been a challenge we’ve mobilized our efforts around solving. In 2020 it was covid; before that, the housing market and banking system; prior to then, 9/11; and so forth. Those efforts took the form of generally supportive, if not perfect, fiscal and monetary policy founded on the conviction that a vibrant economy and functioning capital markets were essential. That seems to have been upended now, with the tumult we’re seeing—which appears to be directly attributable to policy choices—seeming to serve as a means to an end goal of realigning global trade, reindustrializing, and rightsizing the federal balance sheet. In other words, this time the call is coming from inside the house. If that doesn’t scare you at least a little bit, I’m not sure what would.

“That said, I’m not making any big changes to how I save for the future or manage my investments. I’m still contributing to our retirement plan; I’m not modifying my asset allocation or holdings; and while I’m loath to trade, if the opportunity to scoop up high-quality stocks on the cheap presented itself, I’d buy (apart from the purchasing I routinely do through my regular 401(k) plan investments). You could argue I’m too blasé about the risks, and you’re probably right. In fact, I remember looking back on the global financial crisis and thinking to myself “yeah, you really didn’t have a clue, and if you did you’d have been scared to death.” This time around, the fallout could be deeper, the ramifications more far-reaching, and the solution more elusive than I can possibly imagine. I could lose my job. I should be more nervous.

“And yet I am trying to keep my focus on the things within my control: saving, diversifying, and minimizing costs and transactions. I can’t ignore what’s happening in markets and the economy. We’re all probably a little transfixed by unfolding events. However, I’m not acting on it, as I have no insight into how this will resolve itself, other than to conclude that cooler heads will eventually prevail. Why? Common cause. For all our conflicting agendas and imperatives, we’re too interconnected to wrench ourselves apart, especially at the ruinous cost of doing so. I’m under no illusion this is the best call or won’t look foolish in hindsight. But I’m even less confident I can predict the market’s next turn.”

Jeff Ptak, managing director of Morningstar Research services and columnist